How Sensitive Is Vale To Its EBITDA Margin?

+34.61%
Upside
12.19
Market
16.41
Trefis
VALE: VALE logo
VALE
VALE

Vale (NYSE: VALE) has enjoyed persistent years of high EBITDA margins even during the period of the commodity downturn experienced from 2012-2016. The company’s EBITDA margin has averaged at about 38% during this period even though its sales volume experienced a declining trend. This is largely because of the massive cost advantage that Vale enjoys due to its access to high-grade minerals at a significantly low cost. Vale benefits from a break-even of $43/ton for its giant iron ore division, one of the lowest among its competitors. The iron ore division accounts for greater than 70% of the company’s share of revenue. With improving global economic conditions and stricter environmental curtailments in China, it is more likely than not that Vale is expected to benefit from higher iron ore price realization in the upcoming years. In such a scenario, we have built an interactive model which illustrates the impact of a 1% change in the company’s EBITDA margin on its stock price.

The below graph highlights the implications of the 1% change in the company’s EBITDA margin, details of which are elaborated in our model. Per our analysis, we derive that a 1% improvement in the company’s EBITDA margin results in an almost 2% upside to the current market price of the company. The earnings and P/E multiples are based on our projected results for 2018 and the model assumes that the forward P/E for the company remains constant.

In case you have alternate assumptions in contrary to our assumed revenue, EBITDA margin, or net income margin estimates, you can modify the same in our interactive platform to arrive at your own impact on the company’s valuation.

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  6. Company Of The Day: Vale

We have $10 price estimate for Vale, which is currently below the market price.

Have more questions about Vale? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking and encourages readers to comment and ask questions in the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Vale